Smiths Group, the FTSE 100 engineering and technology company, has warned the
Bank of England’s quantitative easing programme is forcing it to pump money
into its pension pot that could otherwise be spent on investment and
shareholder dividends.

Philip Bowman, chief executive of Smiths Group, said quantitative easing is forcing the company to pump money into its pension schemes which could be spent on investment and shareholder returnsPhoto: BLOOMBERG

In the first warning of its kind from a major British company, chief executive Philip Bowman said the £375bn bond-buying scheme was keeping gilt yields artificially low and partly explained a jump in the company’s pension deficit to £620m in the last financial year from £199m a year earlier.

Smiths, which makes airport scanners, medical devices and seals for oil and gas pumps, has injected £378m into its pension scheme over the past five years to service the mounting deficit, and £122m in the past year alone.

“The problem is investment performance as [the Bank of England] has continued to print money, driving gilt yields down and making a substantial difference.

“This is money which we could otherwise use to invest in the business or on increasing dividends,” Mr Bowman said.

Were bond yields to rise again, the deficit would lower, but Mr Bowman said this might also pose a problem. “The scheme could be over-funded and you would never be able to get the money out again, so there is a potential double jeopardy.”

Smiths is in an ongoing dialogue with the Treasury on the matter as part of a working group with the National Association of Pension Funds. Mr Bowman said the company would like to see Britain adopt the same policy as the US, where pension liabilities are calculated on a longer-term basis and not according to gilt yields at one moment in time, which he described as “perverse”.

Smiths’s full-year results came in slightly ahead of expectations, with revenues rising to £3bn from £2.8bn. Pre-tax profits dipped to £366m from £398m after a number of exceptional charges including £44m in connection with asbestos litigation.

The total dividend rose 5pc to 38p a share, with the final dividend of 26.25p a share payable on November 23.

The company has taken steps in recent years to reduce its reliance on government work from 50pc of revenues to 35pc, and Mr Bowman said pressures on government spending were likely to continue, particularly in the US and parts of Europe.

He said the economic environment remained “uncertain”, and noted a rise in protectionism in countries including the US and Russia, with Smiths under pressure from customers in those countries to manufacture goods in home markets. “If it was to continue it would be a worrying trend,” Mr Bowman said.